March 11, 2014 / 12:41 PM / 3 years ago

METALS-Copper off lows, weak China outlook weighs on metals

* China bonded copper premiums slide $15 to $120-$140 -Shmet

* Worries over copper finance deals continue to weigh on market

* LME nickel prices hit 11-month peak on supply concerns (Adds details, quotes, updates prices)

By Susan Thomas and Eric Onstad

LONDON, March 11 (Reuters) - London copper rose on Tuesday as buyers took advantage of prices that hit their lowest in eight months on Monday, but rising inventories in China and little sign of a pick-up in physical demand kept industrial metals under pressure.

Heavy selling in copper since Friday has not let up on the Shanghai Futures Exchange, with the most-traded May contract losing a further 2.2 percent to reach its lowest for 4-1/2 years on Tuesday.

Three-month copper on the London Metal Exchange rose 0.27 percent to $6,666.75 a tonne by 1425 GMT - off Monday's intraday trough of $6,608 a tonne, its lowest since late June.

Barclays analysts noted buying interest at the lower prices after the two-day fall.

Those falls were partly attributed to concern over waning appetite for the financing deals that have locked up vast quantities of copper in China and helped to underpin the price of the metal.

Much of the copper China imports is used as collateral to raise funds for China's shadow banking sector, and a lot of that money has been used to invest in real estate.

Beijing has long tried to tighten credit on financing deals, which have contributed to rising property prices.

But last week's unprecedented domestic bond default by a Chinese company implied that even high-yielding debt will no longer carry an implicit state guarantee. Analysts now expect more defaults on shadow-banking credit, which would strike at the heart of copper financing deals.

That default was followed by weaker than expected data at the weekend, showing that China's exports in February tumbled 18.1 percent from a year earlier, raising questions about the health of the top commodities buyer.

"I think it's a culmination of China worries," Barclays analyst Gayle Berry said. "We've had a few weak data points coming out of China... and then you have concerns about the financial sector restructuring. That peaked when there was news that that bond was actually allowed to default."

At the same time, strong imports of commodities, including copper, in the first two months of the year have boosted inventories.

Copper stocks in warehouses monitored by the Shanghai Futures Exchange have surged by 65 percent since early January to about 200,000 tonnes CU-STX-SGH.

Physical premiums for bonded metal in Shanghai continued to slide, dropping $15 to $120-$150 a tonne on Tuesday, according to China price provider Shmet. (www.shmet.com/)

Investors will be watching for China's industrial production data later this week.

"Copper will either conclude a significant low, or we'll continue to get weak data out of China on Thursday and that will provide us with the conclusion that the outlook should remain weak," Jonathan Barratt, of Barratt's Bulletin, said.

NICKEL

LME three-month nickel outstripped rises in the base metals complex and hit an 11-month peak of $15,762 a tonne, supported by a ban on ore exports from Indonesia, later paring gains to $15,670, up 1.42 percent.

About $500 million a month in ore and concentrate exports have stopped since Indonesia's imposition in January of new mining rules that included a ban on nickel ore. The country was previously the world's top exporter of the metal.

Zinc was the weakest performer on Tuesday, rising only 0.16 percent to $2,043.25 a tonne. Zinc gained about 9 percent from early February to early March, but has since slid along with other base metals.

While many investors expect prices to rally further based on forecasts that shortages will develop following the closing of large mines, analyst Jessica Fung at BMO Capital Markets said that was already in the price.

"BMO Research has adjusted its supply-demand model and forecasts a relatively tight market in 2014, but zinc prices appear to already have factored in favourable fundamentals and there is therefore little price upside near term," she said in a note.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Three month LME tin (Editing by David Evans)

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